First, a private mortgage loan agreement is going to outline what you are going to get as a return at the beginning of the investment. There is no speculation as to what the return will be nor is the return any way dependent on market forces.
The return is also a very fair return when you compare it against things like T-Bills, GIC, Term Deposits, CD’s and the like.
And all private loans are made with the end in mind meaning that an exit strategy to repay the funds is typically required by a private lender or investor before a deal is approved and funded.
Another major benefit that has led to private real estate loan investing growth is the fact that your investment is secured by real estate. Provided that you’re lending considerably less than 100% of the fair market value of a piece of real estate, there is very little risk of investment loss due to the legal rights an investor has to realize against their registered real estate security in the event of a loan or mortgage default.
Compare this to just about any other type of investment that yields a similar return and you’ll be hard pressed to make a better cash for investor dollars than that provided through a private mortgage.
Most private mortgages are also for a period of one year, so investors also have the ability to stay relatively liquid, or through diversifying part of their portfolio with private mortgages, become more fluid.
Even when the money is coming due, you as the investor have the option to extend the mortgage if its working for you and you don’t have another immediate avenue or need for the money.
This is a very common common questions with a very simple answer.
A private mortgage is no different than a bank mortgage. A loan agreement is registered against a real estate property in first or second position and the investor or lender retains the same legal rights to enforce their security as a bank would have.
Private lending is actually quite straight forward with most of the process managed by the investor through a mortgage broker and a real estate lawyer.
There are times when individual investors will shy away from private lending against real estate property, or take their time getting into it, due to a fear of the unknown.
Compared to most investing options, it is very easy to get into and the risk protection afford those investing considerable.
The number one goal for any investor placing money into private mortgages, or any investment for that matter, is the preservation of capital. Profitable returns are based on a continuous flow of positive earnings without any erosion of the principal.
We manage this with our investors by making sure the loan to value ratio on a given mortgage provides for manageable risk.
Getting into higher ratio mortgages can provide attractive returns, but eventually they can lead to capital erosion as well through loan losses.
By placing mortgage funds that make sense from a real estate security point of view, capital is preserved through out the investing process. This doesn’t mean that you’ll never have a default or problem with privately funded mortgages. But it does mean that when you do have a problem, there is a security buffer to protect you from losing any money.
Another way to make sure you’re investing in deals that make sense for you is to invest locally.
In most cases, private investors will lend in their local geography because of their own knowledge of the local real estate market, and the access that local deal provide in term of going to look at the property and meeting with the borrower if required.
This doesn’t mean you can’t or shouldn’t do deals farther away. If that makes sense and you’re comfortable with the deal, there is no reason not to.
But when you’re starting out, working locally can provide you with more knowledge and comfort related to any deals you may consider investing in.
For the 1st and 2nd mortgages we place, the average rate of return would fall in the 7% to 12% range.
Higher rates of return are certainly possible, but they also come with higher risk.
If you’re lending in the 50% to 60% loan to value range, then rates in the 7% to 8% range are going to be most common.
For deals at 80% loan to value, the rate will be more in the 10% to 11% range.
If want to learn more about private mortgage investing or need some help placing money into private mortgages, then I suggest that you give me a call to and we’ll get all your questions answered right away.